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4. E. Underwriting

 

Underwriting

The process of evaluating a mortgage loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower’s creditworthiness and the quality of the property.

Underwriter

Person in a lending institution who determines if a borrower qualifies for a loan.

Debt Ratio

Debt Ratio

The debt ratio shows your long-term and short-term debt as a percentage of your total assets. The lower your debt-ratio, the better your chances are of qualifying for a mortgage.

Debt to income ratio

the ratio of debt payments to income, including both a borrower’s housing debt and other debts. Lenders calculate this ratio during the mortgage loan underwriting process and use the result as one major factor in determining whether a borrower qualifies for a mortgage loan. A higher ratio means a greater debt burden and generally indicates a greater risk of default.

 Qualification Ratio

 Qualification Ratio

The ratio of the borrower’s monthly mortgage payment to monthly income (Front-end, usually 28%); or the ratio of the monthly payment plus all other monthly long term expenses to monthly income (Back-end, usually 36%).

Front-end Ratio

A loan qualifying ratio, typically requiring the principal, interest, taxes and insurance (PITI) of the proposed loan to be within 29% of gross monthly income.

Back-end Ratio

A loan qualification ratio, typically requiring projected monthly principal, interest, taxes and insurance (PITI), plus all other long-term monthly debt to be within 36% of gross monthly income.

Capacity

The borrower’s income and indebtedness. Used to calculate the loan-to-value (LTV) ratio.

Credit Report

Credit reports are detailed accounts of a person’s credit history and payment habits. Lenders use this report to determine whether or not a borrower is liable to default on a home loan.

Credit History

When applying for a mortgage, lenders will be looking at your credit history, which is a compilation of your borrowing and payment habits. It shows the lender how likely you are to repay the loan they grant you.

FICO Score

Your FICO score is a number that represents your creditworthiness. One of the most widely accepted credit scores, this number comes from an algorithm developed by Fair, Isaac and Company in the 1950. FICO debuted as a general-purpose score in 1989

Credit Report

Credit reports are detailed accounts of a person’s credit history and payment habits. Lenders use this report to determine whether or not a borrower is liable to default on a home loan.

Credit Score

Your credit score is a number that represents your creditworthiness to lenders who are determining whether to grant you a loan. FICO scores are the most widely accepted credit scores.

Character

The history of how a borrower has paid obligations in the past. Known as Credit Scores

 Bankruptcy

Declaring bankruptcy means that you have submitted an application to a court that admits you are unable to pay back your debts. Filing for bankruptcy ruins your credit, which leads to problems when applying for loans in the future.

Collateral

An item of value that a lender can take as compensation if a borrower fails to repay a mortgage loan as scheduled. Borrowers generally are required to secure a mortgage loan with real or personal property as collateral. On mortgage loans, the property that the borrower purchases usually serve as the collateral.